Bloomberg: Welcome back to “Bloomberg Daybreak Europe.” Now Standard Chartered has posted profit that beat analyst estimates in the third quarter, and it’s raised its outlook for income growth and returns. We’re joined now by the Chief Financial Officer, Manus Costello, and we see the stock in Hong Kong trading up almost 8.5 per cent. Good morning Manus, take us through a little bit through this quarter and why we saw so much strength, unexpected strength according to analysts from Standard Chartered.
Manus Costello: Good morning. We’re really pleased with the quarter that we’ve delivered. We showed income up 14 per cent in the quarter, and the story for me is really about the broad-based growth that we’ve seen in our top line this quarter.
We’ve seen good growth in our Transaction Services business, good growth in our Banking business, good growth in our Markets business, and of course our Wealth business continues to do extremely well with income up 26 per cent year-over-year. And what we’ve been able to do is make sure that that strength in the top line is met with the discipline in our cost performance and in our risk metrics.
All of that strength drops through to the bottom line, which is why we’re raising our Return on Tangible Equity guidance today to around 14 per cent. So, really pleased with that broad-based performance.
Bloomberg: So I want to take you from the quarter behind us to the quarter that is in front of us and what we’ve seen so far in this quarter, in the fourth quarter closing out the year. Are you seeing that momentum continuing and what gives you the confidence to say you can raise the outlook?
Manus Costello: I think by raising the outlook, we’re obviously signalling our confidence in the business, our confidence in the franchise and in the momentum that we’re delivering. We’re happy with the start to the quarter. We’ve done well. Of course, markets are volatile.
Of course, there are always risks going forward but we’re happy with what we’ve seen so far and confident that the strength in our franchise is what’s really driving us forward.
Bloomberg: And thinking also about what we’ve seen for your Wealth unit, you’ve brought in USD20 billion. Do you see that continuing this quarter? Is that something that, this kind of growth, is that something that we can continue to be sustained for Standard Chartered?
Manus Costello: It was a really great quarter in terms of net new money in the third quarter, and that continues a very strong run we’ve had this year, and indeed for the last couple of years. So, this is really a continuation of momentum that we’ve seen for a while.
The fourth quarter is always seasonally a little bit lower but we are well on track to hit our USD200 billion of net new money target, which we’ve set ourselves. And obviously, this year is looking like it’ll be a really good step in terms of progress towards that target. So, very pleased there.
Bloomberg: And Manus, I hope you can help me square something. Obviously, the macro outlook has got so many vulnerabilities to say nothing of the wars that we’ve seen across the world and all these sort of issues.
There’s obviously this AI trade that’s supporting things, but we’re seeing from the banks and even banks that are in kind of more difficult markets like BNP really, really outperforming.
Can you sort of square for us the difficulty we’re seeing on the macro with this outperformance we’re seeing over in the banking sector?
Manus Costello: Well, I think what you’ve seen across the sector, and certainly at Standard Chartered, is a real focus on risk control over the course of the last several years. So yes, there are some vulnerabilities in the macro situation, and there’s a lot of discussion around the outlook.
But what you saw from us in this quarter, for example, was really quite a low loan loss rate of just nine basis points, taking our year-to-date so far to just 20 basis points, and really a degree of confidence in what we’re seeing in our balance sheet and in our possibilities going forward.
I think it’s really the result of the fact that we, like others, have had a strong focus on risk control and we’re confident that that will continue in good shape even through some more volatile macro conditions.
That said, of course, macro, it’s always impossible to tell exactly what will happen. It’s always a risk going forwards, but where we stand at the moment, we’re comfortable in our outlook.
Bloomberg: And how do you think about the AI story? Obviously, there’s a lot of questions about the sort of how much money has been poured into this, if it’s been allocated in the right places, if there is the potential for a sharp reversal.
How do you see that story developing and do you see the potential for a sharp reversal sort of threatening that outlook, that macro outlook even further?
Manus Costello: It’s a relatively small portion of our balance sheet at the moment. We don’t have a huge exposure to data centres or to the AI trade more broadly. So we’re not massively exposed. Where we are seeing growth and investing is in certain areas across our footprint, across Asia, Africa, and the Middle East, where we see continued growth coming through.
But I think what you’re seeing in markets at the moment is a questioning of what the outlook will be, an understanding of where revenues are going to come from, and people will continue to reevaluate how that looks as they get more results and as they see more information coming through. But for us, it’s a pretty small piece of our balance sheet at the moment.
Bloomberg: Thinking about obviously the banking service, servicing the AI story, but there’s also a question in which the AI story is going to work through the banking industry.
We’ve heard from Barclays, they’re cutting 5,000 jobs in a sort of cost drive that will be down to some of the efficiencies they’re getting from AI. Is that something we can expect from Standard Chartered?
Manus Costello: I think what you can see from us, and I think you can see it in our results here today, and hopefully you’ll see it going forwards as well, is that AI, along with other technologies, is helping us to drive both our top line – we’re putting AI tools in the hands, for example, of our relationship managers in our Wealth business, which enable them to service the customers better, drive better outcomes for the customers, drive better revenues for us – and investing into the core of our bank so that our processes become more efficient and we can get better scaling operating leverage.
I think you see that in the fact that our cost-income ratio is expected to improve by over 300 basis points this year. We’re forecasting another 300 basis points over the next couple of years, and that’s really about the combined effect both on the top line and on the cost line of measures like AI improving productivity.
Bloomberg: Well, Manus Costello, the CFO of Standard Chartered, thanks so much for joining us this morning after a pretty handy beat and a race of the outlook and the stock up about 8.5 per cent in trading over in Hong Kong.
